EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: June 7, 2022
TO: Honorable Mayor and Members of the City Council
VIA: Patrick Heisinger, Interim City Manager
BY: Tomohito Oku, Finance Director
Bo-Kyoung Kim, Financial Services Manager
SUBJECT: Adoption of Fiscal Year 2022-23 Budget
Recommendation
Adopt a Resolution adopting the Fiscal Year 2022-23 Budget.
Adopt Two-year Capital Improvement Program Update for FY 2022-23 and FY 2023-24
Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
Priority No. 1: Enhance Public Safety and Emergency Preparedness Priority No. 2: Enhance Economic Vitality
Priority No. 3: Increase Organizational Effectiveness and Efficiency Priority No. 4: Improve Public Facilities and Infrastructure Priority No. 5: Improve Communication and Enhance Community Engagement Priority No. 6: Create a Healthy and Safe Community
Background
On May 19, 2022 and May 26, 2022, the City Council hosted the two scheduled Fiscal Year (FY) 2022-2023 Budget Study Sessions. Staff presented the following areas of the budget during those sessions:
Fiscal Year 2022-23 Budget overview
Measure P and Measure HH
Department budget presentation
Two-year CIP budget
Questions and deliberations
At the conclusion of the last meeting, the City Council provided directions and recommendations to staff to complete the development of FY 2022-2023 Budget. Staff has incorporated those items in the budget and will itemize and explain each item in the following analysis section
Analysis
Proposed to Recommended Adopted Budget
During the questions and deliberation process in the May 26, 2022, 2nd Budget study session, the City Council provided several directions and recommendations to the proposed budget.
The following table provides a list of those items and summarizes the changes from Proposed budget to the budget to be adopted.
No. Recommendation Department/Division General
fund
Special rev
funds Other funds Recommended Source
Balanced Proposed Budget N/A $ - $ - $ - N/A
1 Adjustments due to double counted budgeted line
items
City Manager and
Community Services
(17,500) N/A
2 Allocation of PD personnel costs - from General fund
to ARPA fund Police (700,000) 700,000 - ARPA fund
3 Tranfer to CIP fund - to support 12" Water Main
project
PW/CIP 700,000 - (700,000) General fund
4 Additional Pandemic response expenditures -
extended through December 2022 Admin - 35,000 - ARPA fund 5 Park Recreation Aides Community Service 18,000 - -
General fund/ARPA
fund transfer
6 2 Full-time Community Service Officers (CSO) and
adjustments to Community Service Aide (CSA)
positions
Police 226,640 - -
General fund/ARPA
fund transfer
7 Reserve Officer Program Police 144,000 - -
General fund/ARPA
fund transfer
8 Additional tree maintenance augumentation Maintenance 50,000 General fund/ARPA
fund transfer
9 General maintenance augumentation Maintenance 50,000
General fund/ARPA
fund transfer
10 City hall tenant improvements to the former Police
Evidence Room PW/CIP 350,000
General fund/ARPA
fund transfer
11 Transfer from ARPA fund to General fund N/A (821,140) 821,140 General fund/ARPA
fund transfer
Total change from Proposed to Adopted $ - $1,556,140 $ (700,000) Fiscal imapct
The items numbered 6-11 include new information to the Council and described as follows:
Enhancement of Community Service Officers (No.6)
As in the staff report for 5/26 budget session, staff recommended developing a new model for deployment of the Police Department Community Service employees to promote the recruitment and enhance the police community services, which the Council agreed upon.
Now, staff recommend converting the existing 6 part-time Community Service Aide positions to 2 full-time Community Service Officer (CSO) positions and 4 part-time CSO positions which will require an additional appropriation on the General fund for approximately $227K.
The cost estimate is based on gross estimates pending HR analysis of job descriptions and comparable salary ranges, and staff will return to the Council for a formal classification approval in a future City Council meeting. The decision to re-classify the CSA position to an already existing CSO was based upon Council direction to increase the CSA compensation and the convenience of an existing CSO classification which accomplishes the pay increase and accommodates the expanded duties.
Reserve Officer Program (No.7)
Part of the discussion regarding Police Department enhancement during the budget session, staff also recommended considering a Reserve Officer Program in which retired officers or inexperienced police academy graduates who need additional development may be employed on a part-time basis to increase police capacity, as needed. A Reserve Officer possesses the same level of authority as a full-time police officer, yet the position does not receive benefits. The costs to the General fund would be approximately $144K with the assumption of 20hrs/week for 3 positions. Staff will return to the Council for a formal classification approval in a future City Council meeting.
Tree Maintenance and General Maintenance Augmentations (No.8 and No.9) The City Council directed staff to enhance City’s general arborist services to help with street trees and trees in public parks in FY 2022-23 Budget which is estimated to be an additional $50,000 to the General fund. In addition, the Council also recommended an additional $50,000 for general maintenance costs due to increases on demands on the City’s maintenance division.
City Hall Tenant Improvements to The Former Police Evidence Room (No.10) The City Council raised a question regarding status of City Hall Tenant Improvement plan which had been deferred due to COVID-19 pandemic after completing the design packet.
The Council suggested staff plan to restore the project and include the renovation costs for the former police evidence room in FY 2022-23 Budget. The estimated cost for these improvements is $350,000.
Transfer from ARPA fund to General fund (No.11)
Due to the additional items (No.1-11) in the table, the General fund budget would have a budget deficit of $821K. Staff recommended to keep the General fund balanced by transferring $821K from ARPA fund to the General fund.
FY 2022-23 Citywide Budget
The FY 2022-23 Citywide Budget (excluding Trust & Agency) reflects total revenues of $50.8M and total expenditures of $48.8M resulting in positive net change in fund balance of $2.0M across all City funds.
Description
General
Fund
Restricted
Funds
Capital
Funds
Enterprise
Funds
TOTAL CITY
FUNDS
Successor
Trust Fund
Total Revenues 29,449 13,548 3,009 4,808 50,812 5,511
Total Expenditures (28,452) (11,238) (966) (8,110) (48,766) (1,664) Net Sources / (Uses) 997 2,310 2,042 (3,303) 2,046 3,847 Net Transfers (997) 297 700 - - -
Change in Fund - 2,607 2,742 (3,303) 2,046 3,847
FY 22-23 Budget - Citywide Funds (In 000's)
The adopted budget reflects a shift in proposed budget and funding method for the American Rescue Plan (ARPA) monies. As such, there are several changes between the proposed and final adopted budget which are described in the previous section of this report. In the fund group analysis below, the changes impacting the funds is described.
FY 2022-23 General Fund Budget
The FY 2022-23 General Fund Budget revenues of $30.3M consists of operating revenues of $29.4M plus ARPA “revenue loss” transfers of $0.8M; offset by expenditures of $29.8M consisting of $28.8M operating and capital expenditures and $1.0M transfers to support other fund operating deficits. This balance condition in no way resolves the heightened duress and pressure of the General Fund, and we may set our expectations that conditions are volatile and subject to close monitoring and potential adjustment. The table below reflects the detail fund changes:
Revenues Expenditures In Out
10 General Fund $ 29,168,770 $ (26,602,520) $ 350,000 $ 821,140 $ (4,007,390) $ (270,000) 11 IT Replacement Fund $ - $ (1,121,860) $ - $ 1,121,860 $ - $ - 12 Equipment & Vehicles $ - $ (95,000) $ - $ 95,000 $ - $ - 13 Self Insurance $ - $ (972,170) $ - $ 972,170 $ - $ - 16 Community Benefit Fund $ - $ - $ - $ - $ - $ -
17 Com Dev Pass Thru $ 280,000 $ (10,000) $ - $ - $ - $ 270,000 $ - $ - $ - $ (3,010,170) $ 3,010,170 $ -
$ 29,448,770 $ (28,801,550) $ 350,000 $ - $ (997,220) $ - FY 2022-23 General Fund Budget Summary
Fund Description
Operating Capital
Improvement
Plan
Operating Transfers
Net Change
Fund Balance
ELIMINATING ENTRY
General Fund
The General Fund deficit is reduced from $1.6M baseline deficit to a breakeven point.
The city is balancing the budget through improvement of revenue projections, reductions in rolling stock and equipment purchases, reductions in professional services, and allocation of PD costs to the ARPA fund. As mentioned above, there were additional incremental budget items recommended by the Council totaling $821K during the deliberation process in the previous budget session which will be covered by a transfer from the ARPA fund. We reiterate below, the significant and critical resource challenges impacting the General Fund:
Revenue Type FY 2022-23 Budget Impact Status
Property Tax in Lieu $2.5M
No funding source other than State budget repayment. No State mandate to repay. Total shortfall is projected to be about $2.5M. Will know State repayment status in one year.
Redevelopment Property Tax Trust Fund $0.65M
Excess property tax from Redevelopment Dissolution. Chula Vista Court decision changed calculation of "pass through" agreements. Estimate impact until 2033.
Transient Occupancy Tax $1.1M Hotel occupancy recovery trajectory unknown. Current recovery stubbornly low.
Extended time gap in new development Unknown Capacity planning and infrastructure issues both within and outside City oversight.
We further note the budget does not reflect: (1) SFCJPA Reach II Contribution ($1.5M); (2) Acquisition funding for the Library Property ($1.2M); (3) Comprehensive building plans for Martin Luther King Jr. Park Redesign ($1.1M); and (4) CEQA and design for Bell Street Park ($0.9M). There projects are currently unfunded, and Staff plan to return to the Council for additional information and seek Council approval.
FY 2022-23 Special Revenue Funds Budget
Budgeted revenues and expenditures total $13.2M and $11.0M, respectively; increased by net operating transfers in of $0.3M. Capital funding consists of SB1- funded and County Measure A and Measure W projects for qualified street and sidewalk improvements.
Revenues Expenditures In Out
213 Police Grants $ 162,000 $ (191,420) $ - $ - $ - $ (29,420) 215 Misc Federal and State Grants $ 57,000 $ (45,000) $ - $ - $ - $ 12,000 230 Local Grants $ 153,000 $ - $ - $ - $ - $ 153,000
231 CYSFF TOT $ 144,000 $ (45,280) $ - $ - $ - $ 98,720 232 Measure C $ 1,000 $ (207,300) $ - $ - $ - $ (206,300) 290 ARPA- American Rescue Plan $ 3,531,250 $ (830,440) $ - $ - $ (821,140) $ 1,879,670 Community Programs $ 4,048,250 $ (1,319,440) $ - $ - $ (821,140) $ 1,907,670 201 State Gas Tax $ 1,541,000 $ (772,210) $ (550,000) $ 64,500 $ - $ 283,290 202 Measure A $ 636,000 $ (3,210) $ (500,000) $ - $ - $ 132,790 203 NPDES $ 247,500 $ (551,370) $ - $ 303,870 $ - $ -
206 Park In Lieu $ - $ - $ - $ - $ - $ -
221 Lighting District $ 678,930 $ (177,080) $ - $ - $ - $ 501,850 222 Drainage District $ 144,000 $ (431,270) $ - $ 287,270 $ - $ - 234 County Measure W $ 304,000 $ (1,500) $ (200,000) $ - $ - $ 102,500 Infrastructure Programs $ 3,551,430 $ (1,936,640) $ (1,250,000) $ 655,640 $ - $ 1,020,430 204 Rent Stabilization $ 544,860 $ (657,860) $ - $ - $ - $ (113,000) 207 Housing In Lieu $ 1,042,000 $ (4,030,160) $ - $ - $ - $ (2,988,160) 209 Housing Assistance Program $ 4,500 $ (6,250) $ - $ - $ - $ (1,750) 216 Commercial IF $ 2,475,280 $ - $ - $ - $ - $ 2,475,280 218 Affordable Housing TOT $ 158,000 $ (27,280) $ - $ - $ - $ 130,720 219 Measure HH $ 1,702,280 $ (619,060) $ - $ - $ - $ 1,083,220 220 Lo-Mod Housing Successor $ 20,000 $ (1,222,630) $ - $ 462,720 $ - $ (739,910) 233 Silicon Valley Community $ 1,000 $ (168,440) $ - $ - $ - $ (167,440) Affordable Housing Programs $ 5,947,920 $ (6,731,680) $ - $ 462,720 $ - $ (321,040) Total Special Revenue Funds $ 13,547,600 $ (9,987,760) $ (1,250,000) $ 1,118,360 $ (821,140) $ 2,607,060 Net Change
Fund Balance
Fund Description
Operating Capital
Improvement
Plan
Operating Transfers
FY 2022-23 Special Revenue Funds Budget Summary
Special Revenue Funds are categorized for ease of understanding into the following subcategories:
· Community Program-related: Total revenues of $4.0M are offset by total expenditures of $1.3M. This category changed significantly due to ARPA funding. The State of California estimates ARPA total allocation of $7M - of this amount $3.5M revenue, the second tranche of payment, is included in the budget. ARPA programs costs are predominantly used to fill the General fund deficit due to the revenue challenges including revenue loss from COVID-19. All revenue loss components are reflected as transfers to the General Fund of $0.8M and the PD cost allocation to the ARPA fund of $0.7M.
· Infrastructure-related: Operating revenues of $3.6M plus transfers in of $0.7M are offset by total expenditures of $3.2M, including restricted transportation capital spending of $1.3M. Notably, the General Fund is partially supporting NPDES and Drainage District funds for a total of $591K. This is increased from previous year due mainly to increases in Maintenance Division expenditures related to street cleaning, costs to repair existing fence for Runnymede drainage system, as well as, system maintenance and repair for Pump Station equipment. Costs also include increased staff and program costs related to the Environmental Programs activity. As previously indicated, long-term capital, program and maintenance costs must be analyzed in order to support the basis for potential assessment or other district funding for the underlying infrastructure.
· Affordable Housing-related: Total revenues of $6.0M and transfers in ($0.5M) are offset by total expenditures of $6.7M, including budgeted affordable housing loans of $3.4M - HEART matching loans ($1.7M), CalHome ($1.0M), and Mid-Peninsula Gap funding ($0.7M).
FY 2022-23 Capital Funds Budget
Budgeted revenues and expenditures total $3.0M and $0.1M respectively; increased by operating transfers in of $0.7M.
Revenues Expenditures In Out
301 Capital Improvement Fund $ 458,000 $ (110,850) $ (855,410) $ 700,000 $ - $ 191,740 303 Capital Grant $ - $ - $ - $ - $ - $ -
305 Parks & Trails $ 233,000 $ - $ - $ - $ - $ 233,000
306 Public Facilities $ 405,000 $ - $ - $ - $ - $ 405,000 307 Transportation $ 1,756,570 $ - $ - $ - $ - $ 1,756,570 308 RBD-I Storm D $ 3,850 $ - $ - $ - $ - $ 3,850
309 RBD-O Storm D $ 152,150 $ - $ - $ - $ - $ 152,150
Capital Funds $ 3,008,570 $ (110,850) $ (855,410) $ 700,000 $ - $ 2,742,310 FY 2022-23 Capital Funds Budget Summary
Fund Description
Operating Capital
Improvement
Plan
Operating Transfers
Net Change
Fund Balance
Notable trends include restoration of impact fee revenues from the deferred development issues related to the Sanitary District which staff expect the revenues to start coming in FY 2022-23. However, staff anticipate a chance of downward adjustments to the revenue projections as status of the District issues keeps evolving.
Several years ago, the City embarked on an assertive capital infrastructure plan to provide adequate matching funds for grant funding sources. To date, the City has committed grant and internal monies required to fund major projects such as SFCJPA Safer Bay, SFCJPA Reach II, Bay Road Improvement, University Avenue Interchange, Addison Avenue, etc.
The City has been fortunate to fund both capital contribution and significant, post-construction maintenance costs on completed projects; however, as noted previously, near-term revenue growth was a challenge prior to COVID-19, and the City now faces more intense challenges in the ability to meet increasing operational cost demands, provide maintenance of large infrastructure projects, and co-fund such projects on a “pay as you go basis”. For example, 12” Water Main project, one of the urgent major projects, needed to tap into the General fund reserve for $0.7M in addition to $3.8M funding source from the water capital fund which reflects into $0.7M transfer-in from the General fund.
Despite major progress toward mitigating several infrastructure risks, several significant, critical capital-related regulatory issues remain, primarily related to water distribution and storage; storm water and storm water facilities; and lack of City-owned facilities. Given the age and condition of much of the City’s major infrastructure systems, the City will need to continue to address critical funding challenges through aggressive grants funding application, as well as, careful and targeted use of existing reserves. The City may not ever experience the excess general surpluses realized in recent years due to explosive growth in property values, new tax measures, and suppressed service provision.
FY 2022-23 Enterprise Funds
Budgeted revenues and expenditures total $4.0M and $3.8M, respectively.
Revenues Expenditures In Out
510 Water Service Fund $ 482,500 $ (421,730) $ - $ - $ - $ 60,770 511 Water Capital Fund $ 533,000 $ (100,000) $ (4,014,000) $ - $ - $ (3,581,000) 512 Water Meter Fund $ 289,000 $ - $ - $ - $ - $ 289,000 513 Water Capacity Fee Fund $ 490,000 $ - $ (456,000) $ - $ - $ 34,000 Water Enterprise $ 1,794,500 $ (521,730) $ (4,470,000) $ - $ - $ (3,197,230) 520 Garbage Service Fund $ 3,013,000 $ (3,118,740) $ - $ - $ - $ (105,740) Total Enterprise $ 4,807,500 $ (3,640,470) $ (4,470,000) $ - $ - $ (3,302,970) FY 2022-23 Enterprise Funds Budget Summary
Fund Description
Operating Capital
Improvement
Plan
Operating Transfers
Net Change
Fund Balance
The net change in fund balance totals a deficit of $3.2M with the following major trends:
· The Water Enterprise consists of lease revenue and capital surcharges paid or passed to the City from Veolia. Water Enterprise charges collected from customers provides a primary source of revenue for major capital improvements to the water system infrastructure. The city also pursues federal and state grant opportunities. The City Council has recently approved 12” Water Main project, one of the critical projects totaling approximately
5.0M which require internal funding sources, including the water capital fund ($3.8M), the water capacity fee fund ($0.5M) and a transfer from the General fund to CIP ($0.7M) which are the main cause of the $3.2M deficit in net change in fund balance.
· The Solid Waste (garbage) Enterprise consists of residential solid waste services collected through the County property tax rolls and passed to Recology. Recology direct-bills the multi-family housing and commercial accounts. The fund also accounts for local solid waste service improvement programs.
FY 2022-23 and FY 2023-24 Two-year Capital Improvement Program Update A Capital Improvement Plan (“CIP”) serves as a City's road map for preserving, maintaining, and developing any City-owned public infrastructure or assets. Generally, a CIP provides a five- to ten-year plan for all individual capital projects, equipment purchases, and major studies and includes construction, scheduling, and financing for each project. A comprehensive CIP clearly delineates the objectives of capital programs and its relationships to a City’s long-range development plans.
On September 15, 2020 the City Council adopted the Ten-year CIP. Since the adoption of the CIP in 2020, there have been a number of additional projects that are recommended to be included in the CIP based on City Council priorities, grants, and staff recommendations. Acting Public Works Director presented Two-year Capital Improvement Program Update for FY 2022- 23 and FY 2023-24 during the previous budget study session (please see the attachment# 3).
Public Notice
The public was provided notice of this agenda item by publishing a notice of the hearing dates in “Mercury News” and, also, posting the City Council agenda on the City’s official bulletin board outside City Hall and making the agenda and report available at the City’s website.
Environmental
The action being considered by the City Council is exempt from the California Environmental Quality Act (CEQA) because it is not a “project” pursuant to 15378(b)(4) because it is a fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant impact on the environment.
Attachments
1. Resolution for FY22-23 Budget
2. Financial Summary - All Funds
3. FY 2022-23 and FY 2023-24 Two-year Capital Improvement Program Update
4. Resolution for FY 2022-23 and FY 2023-24 Two-year Capital Improvement Program Update
Attachments
1. Resolution for FY22-23 budget
2. Financial Summary - All Funds
3. FY 2022-23 AND FY 2023-24 Two-year Capital Improvement Program Update
4. Resolution for FY 2022-23 AND FY 2023-24 Two-year Capital Improvement Program Update